The idea for E-Trade came a decade too soon. Personal computers and modems were novelties, and the prospects of a viable market were far beyond the horizon, when the company founded by William A. Porter executed its first on-line trade - on July 11, 1983. Today Mr. Porter and his associates at Palo Alto, Calif.-based E-Trade Group say they are ready to lead the pack in offering an array of financial services over the Internet. Company officials speak of a future in which stock trading is just one of many high-tech financial options. In June, the company formed E-Trade Online Ventures to offer mutual funds and insurance policies on the World Wide Web. A potential alliance with Intuit Inc. would permit users to load information from their E-Trade accounts into the Quicken financial management software, which already has banking capabilities. And besides preparing for their own initial public offering this month, E-Trade officials plan to help other companies raise capital through on- line offerings to subscribers only. E-Trade epitomizes, in the brokerage context, the new wave of disintermediation - the threat to intermediaries or middlemen - that the Internet makes possible. The question of whether traditional securities brokers have a future is of little concern to E-Trade. One of its advertising slogans: "Boot your broker. Reboot with E-Trade." "Even though I got flak when I said the broker is obsolete, there is a lot of truth in that," said Mr. Porter, a 67-year-old physicist who holds 14 patents in communications and industrial electronics. "With the ready availability of information on the Internet, there really isn't a great deal of need for the broker these days, except for the people who want hand-holding." E-Trade doesn't help pick stocks or strategies. It doesn't handle requests for research. And it doesn't have offices where clients can meet their brokers face to face. But it charges commissions of only $15 for exchange-listed securities and $20 for those sold over the counter. "They are one of a very small group pushing the Internet-only option, and that is precisely what they should be doing," said Julio Gomez, an analyst with Forrester Research in Cambridge. "There is an opportunity to dominate a new sector of the financial services industry." But E-Trade's do-it-yourself attitude and limited backup support have turned some customers off. This summer's stock-market volatility produced what a company spokeswoman called "glitches" in confirming trades. William W. Camp, an attorney at Howie & Sweeney in Dallas, claimed more than 1,500 people lost money because of E-Trade delays. E-Trade officials deny that their transaction system was to blame. Telephone lines were open even during the heaviest trading days, said Rebecca L. Patton, vice president of marketing. Mr. Gomez at Forrester saw the matter as a symptom of growing pains. "But it needs to be addressed and fixed," he said. E-Trade is descended from Trade Plus, which was founded in 1982 as a service bureau for discount brokers. The company did back-end work for Fidelity Investments, Charles Schwab, and Quick & Reilly, though Fidelity and Schwab withdrew to assemble competing services. It became evident, Mr. Porter said, that discount brokerages "don't really pass their economic savings on to the customer," so E-Trade Securities was formed as a subsidiary in 1992. At first it charged $45 for enabling individuals to make trades directly; in the four years since, it has cut prices seven times. Customers have been able to access the service through Compuserve since 1992 and America Online since 1994; they can also use direct modem connection or touch-tone telephone. Since February, access has been available over the World Wide Web. This year, accounts with E-Trade have grown an average of 11% a month. Average daily volume grew from 4,200 trades last December to 9,300 in May - a 17% rise in the average month. Revenues have grown accordingly. The parent's totaled $848,000 the year the broker/dealer subsidiary was launched, and $23.2 million last year. That's annual growth averaging 173%. But in its bid for market leadership, E-Trade could get squeezed by both on-line and discount brokers. Charles Schwab's e.Schwab cut its on-line price to $30 a trade in June. Transterra's eBroker, also known as All- American Brokers, is down to $12 a trade. While E-Trade seeks to expand through strategic alliances, it also plans to trade on its emerging brand name. "When people deal with investments and money, which are near and dear to their hearts, they want to be hooked up with someone who is established, reputable, and has a good track record," said Christos M. Cotsakos, E- Trade's president. "That is why the branded solution in the marketplace is more powerful than the private label. "We believe we offer all the opportunities that a bank or brokerage offers," he added. In March Mr. Porter brought in Mr. Cotsakos, 47, who had been president of A.C. Nielsen Worldwide and an executive with Federal Express. The two men had breakfast on a Monday morning and struck a deal on Wednesday; by Friday, Mr. Cotsakos had personally invested $850,000 in the 200-employee E-Trade Group. His is particularly enthusiastic about E-Trade's playing a role in on- line underwriting. "It is an exciting opportunity for individuals to participate in the explosive IPO market," he said in an interview. "They haven't been included since the 1970s, when the institutions took over." "Many companies at the $5 million to $10 million level are stuck if they need additional capital," added Mr. Porter. "It is good for our customers and extremely important to the country, and we see ourselves moving into that niche." In the meantime, it must deal with a restive public. On the Web site Silicon Investor, E-Trade has been accused of not living up to its advertising claim of "the fast execution . . . you expect from the leading electronic brokerage." Kelly Blaine Flaherty, an accountant at Legacy Advisors in Dallas, floated the idea of a class action against E-Trade. He says hundreds of investors replied saying they had lost money because of untimely executions and inadequate management reactions. In May a computer hardware failure left customers without access to their accounts for two and a half hours. The company eventually paid $1.7 million to clients who lost money in the market. E-Trade has increased its capacity, and Mr. Flaherty conceded that response times have gotten better. But he claimed to have documented incidents in which E-Trade executed orders at three-eighths of a cent higher than the shares were trading. "If you represent yourself as being able to perform certain functions and you don't perform them, you have a fraud," said Mr. Camp, the Dallas lawyer. He said E-Trade was likely to be hit with a class action, but would not say whether his firm would be involved. "The bottom line is that there is little or no response by E-Trade when there have been problems. And whether you do a sell, a limited purchase, or a margin purchase, there is a problem in almost every area of transaction," Mr. Camp said. Phoebe Simpson, an analyst with New York-based Jupiter Communications, agreed that E-Trade's response has been troubling. "They are blaming the customers for their losses," she said. "E-Trade may be premature in going public, because they will be held as the litmus test for on-line brokerage in general. They should be secure in their system before they put in on the Wall Street stage." "We have experienced a lot of growth since we launched on the Internet," said Ms. Patton at E-Trade. "That growth, combined with high market volumes in May, resulted in some people who were not able to get into the site. We are in a very aggressive campaign to expand on the Web, and we have more than doubled our capacity since then." Added Mr. Cotsakos: "In our industry there are gorillas and guerillas. Everyone else is a gorilla, walking slowly and methodically. We are guerillas, and we move quickly."

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